Inventories piling up at factories

WASHINGTON (CBS.MW) -- Inventories were piling up at the nation's factories in January even as new orders plunged 3.8 percent, the Commerce Department said Tuesday.

Inventories grew 0.7 percent in January. With shipments down 1.1 percent, the inventory-to-shipment ratio rose to 1.35, the highest in nearly two years. The ratio has been in a long decline as companies gain better knowledge of their sales, shipments and inventories.

Federal Reserve policymakers have said they believe the current economic downturn will be limited to a relatively quick inventory correction. Tuesday's data show that in January factories were still adjusting production to the lower levels of demand.

The inventory accumulation in January was widespread across industries.

Durable goods industries added 0.9 percent to their stocks of goods, led by a 1.7 percent increase in electronics and other electrical goods. Inventories at communications equipment makers rose 3.3 percent while inventories at electronic components such as semiconductors increased 2.2 percent.

Among nondurables goods producers, only paper goods and industrial chemicals inventories were increasing rapidly. In the nondurables sector as a whole, inventories rose 0.4 percent.

On the demand side, the government said orders fell 3.8 percent, trivially higher than the 3.4 percent expected by Wall Street. The drop was largely due to falling demand for airplanes, ships, electronics and basic metals.

Orders for durable goods meant to last three years or longer dropped 6.5 percent to $201.3 billion, compared with last week's estimate of 6 percent. Orders for nondurable goods fell 0.2 percent to $165.2 billion.

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